ING Direct 2009 Annual Report Download - page 278

The use of different assumptions about these factors could have a material effect on insurance provisions and underwriting expense.
Changes in assumptions may lead to changes in the insurance provisions over time. Furthermore, some of these assumptions can be
volatile.
Because we use assumptions to model client behaviour for the purpose of our market risk calculations, the difference
between the realisation and the assumptions may have an adverse impact on the risk figures and future results.
We use assumptions in order to model client behaviour for the risk calculations in our banking and insurance books. Assumptions are used
to determine insurance liabilities, the price sensitivity of savings and current accounts and to estimate the embedded optional risk in the
mortgage and investment portfolios. The realisation or use of different assumptions to determine the client behaviour could have material
adverse effect on the calculated risk figures and ultimately future results.
Our risk management policies and guidelines may prove inadequate for the risks we face.
The methods we use to manage, estimate and measure risk are partly based on historic market behaviour. The methods may, therefore,
prove to be inadequate for predicting future risk exposure, which may be significantly greater than what is suggested by historic
experience. For instance, these methods did not predict the losses seen in the stressed conditions in recent periods, and may also not
adequately allow prediction of circumstances arising due to the government interventions and stimulus packages, which increase the
difficulty of evaluating risks. Other methods for risk management are based on evaluation of information regarding markets, customers or
other information that is publicly known or otherwise available to us. Such information may not always be correct, updated or correctly
evaluated.
We may incur further liabilities in respect of our defined benefit retirement plans if the value of plan assets is not sufficient
to cover potential obligations.
ING Group companies operate various defined benefit retirement plans covering a significant number of our employees. The liability
recognised in our consolidated balance sheet in respect of our defined benefit plans is the present value of the defined benefit obligations
at the balance sheet date, less the fair value of each plan’s assets, together with adjustments for unrecognised actuarial gains and losses
and unrecognised past service costs. We determine our defined benefit plan obligations based on internal and external actuarial models
and calculations using the projected unit credit method. Inherent in these actuarial models are assumptions including discount rates, rates
of increase in future salary and benefit levels, mortality rates, trend rates in health care costs, consumer price index, and the expected
return on plan assets. These assumptions are based on available market data and the historical performance of plan assets, and are
updated annually. Nevertheless, the actuarial assumptions may differ significantly from actual results due to changes in market conditions,
economic and mortality trends and other assumptions. Any changes in these assumptions could have a significant impact on our present
and future liabilities to and costs associated with our defined benefit retirement plans.
We are subject to a variety of regulatory risks as a result of our operations in less developed markets.
In the less developed markets in which we operate, judiciary and dispute resolution systems may be less developed. As a result in case of a
breach of contract we may have difficulties in making and enforcing claims against contractual counterparties and, if claims are made
against us, we might encounter difficulties in mounting a defence against such allegations. If we become party to legal proceedings in a
market with an insufficiently developed judiciary system, it could have an adverse effect on our operations and net result.
In addition, as a result of our operations in less developed markets, we are subject to risks of possible nationalisation, expropriation, price
controls, exchange controls and other restrictive government actions, as well as the outbreak of hostilities, in these markets. In addition,
the current economic environment in certain of the less developed countries in which we operate may increase the likelihood for
regulatory initiatives to protect homeowners from foreclosures. Any such regulatory initiative could have an adverse impact on our ability
to protect our economic interest in the event of defaults on residential mortgages.
Because we are a financial services company and we are continually developing new financial products, we might be faced
with claims that could have an adverse effect on our operations and net result if clients’ expectations are not met.
When new financial products are brought to the market, communication and marketing aims to present a balanced view of the product
(however there is a focus on potential advantages for the customers). Whilst we engage in a due diligence process when we develop
products, if the products do not generate the expected profit, or result in a loss, or otherwise do not meet expectations, customers may
file claims against us. Such claims could have an adverse effect on our operations and net result.
Ratings are important to our business for a number of reasons. Among these are the issuance of debt, the sale of certain
products and the risk weighting of bank and insurance assets. Downgrades could have an adverse impact on our operations
and net results.
We have credit ratings from Standard & Poor’s Ratings Service (‘Standard & Poor’s’), a division of the McGraw Hill Companies, Moody’s
Investor Service (‘Moody’s’) and Fitch Ratings. Each of the rating agencies reviews its ratings and rating methodologies on a recurring basis
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Risk factors (continued)
2.4 Additional information
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